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Fitch

Категорія — Кредитні рейтинги
By Konstantin Vasilev Member of the Board of Directors of Cbonds, Ph.D. in Economics
Updated February 14, 2024

About Fitch Ratings

Fitch Ratings stands as a pivotal player in the global financial landscape, headquartered in both New York City and London. Established in 1914 as the Fitch Publishing Company by John Knowles Fitch, it has evolved into one of the "Big Three" credit rating agencies, alongside Moody’s and Standard & Poor’s.

As an internationally recognized statistical rating organization (NRSRO) designated by the U.S. Securities and Exchange Commission, Fitch holds a critical role in providing investors with insights into the creditworthiness of entities, aiding them in making informed investment decisions. The agency’s assessments are instrumental for investors seeking to gauge the likelihood of default and secure robust returns, particularly through the utilization of its sophisticated credit rating system.

Fitch

History of Fitch Ratings

As the third-largest NRSRO rating agency, Fitch Ratings has grown strategically, positioning itself as a critical player in the credit rating landscape. With dual headquarters in New York and London, Fitch became a wholly-owned entity of Hearst following an acquisition of an additional 20 percent for $2.8 billion in 2018. Hearst’s involvement traces back to its initial 20 percent equity interest in 2006, which expanded over the years.

Fitch Ratings, along with Fitch Solutions, constitutes the Fitch Group, a testament to its expansive influence. The agency has evolved, not merely as a provider of credit ratings but as a dynamic force in the financial services industry, frequently positioning itself as a "tie-breaker" when the ratings from other agencies are similar but not equal in scale.

Fitch Ratings Process

The assessment begins with an in-depth analysis of financial data, examining factors such as debt structure, cash flows, and sensitivity to systemic changes like interest rates. Fitch’s analytical tools are instrumental in distilling complex financial information, enabling the agency to provide accurate and forward-looking credit opinions. This process involves a thorough examination of a company’s risk profile, including its ability to weather economic fluctuations and business challenges.

The Fitch Rating Scale is a letter-based system used by Fitch Ratings to assess the creditworthiness of entities. The scale differentiates between investment-grade and non-investment-grade categories. Investment-grade ratings include AAA, AA, A, and BBB, indicating varying degrees of credit quality. Non-investment-grade ratings encompass BB, B, CCC, CC, and D, signaling elevated levels of vulnerability to default. The scale provides investors with a nuanced understanding of the risk associated with different entities, helping them make informed decisions in the complex landscape of investments and financial markets.

Usage of Fitch’s Ratings

Investors globally rely on Fitch Ratings as a cornerstone in their decision-making process, utilizing the agency’s credit assessments to inform investment strategies and mitigate risks. Fitch’s ratings serve as a vital tool for financial institutions, offering valuable insights into the credit quality of various entities, including companies, local governments, and agencies. The letter-based rating system, ranging from AAA to D, provides investors with a nuanced understanding of the likelihood of default and the overall risk associated with an investment. For instance, a company rated AAA by Fitch signifies exceptionally high quality and reliability in cash flows, while a D rating indicates that the entity has already defaulted.

In addition to aiding investment decisions, Fitch Ratings extends its influence to sovereign credit ratings, offering a lens through which investors can assess a nation’s ability to meet its debt obligations. Countries actively seek Fitch’s evaluation of their economic, political, and financial environments, as the resulting sovereign credit rating significantly influences international investor sentiments. Fitch awarded the United States the highest AAA long-term sovereign credit rating in 2018. This endorsement serves not only as a measure of the country’s creditworthiness but also influences borrowing costs and access to funding in international bond markets.

Challenges and Criticisms

Fitch Ratings, like other major credit rating agencies, has faced criticisms and challenges, particularly in the aftermath of significant financial crises. One notable critique revolves around the misrepresentation of risks associated with mortgage-related securities, including collateralized debt obligations (CDOs). The agency, alongside its counterparts, faced accusations of assigning top ratings to securities that later incurred substantial losses. Despite these challenges, Fitch stood out by issuing warnings on constant proportion debt obligations (CPDOs) as early as 2007, signaling an awareness of potential risks before the crisis unfolded. This proactive stance demonstrates Fitch’s commitment to transparency and a willingness to address systemic vulnerabilities within the financial markets.

An illustrative example of the challenges faced by credit rating agencies, including Fitch, involves losses on $340.7 million worth of CDOs issued by Credit Suisse Group. These securities, rated AAA by Fitch, incurred significant losses, highlighting the limitations and complexities inherent in accurately assessing risks. However, Fitch’s differentiated approach in warning about CPDOs showcases a degree of prudence and foresight.

Acquisitions and Growth

In 2000, Fitch acquired Chicago-based Duff & Phelps Credit Rating Co., marking a significant step in broadening its portfolio and expertise. This acquisition allowed Fitch to integrate additional resources and talent, enhancing its capacity to assess creditworthiness across various sectors. Subsequently, in the same year, the acquisition of Thomson Financial BankWatch further solidified Fitch’s position by incorporating valuable insights into the financial health of institutions, reinforcing its analytical capabilities.

More recently, in 2022, Fitch Group made a strategic move by acquiring GeoQuant, an AI-driven data and technology company. This acquisition reflects Fitch’s commitment to staying ahead in the rapidly evolving landscape of financial analytics. GeoQuant’s expertise in leveraging artificial intelligence aligns with Fitch’s dedication to utilizing advanced analytical tools, positioning the agency to provide even more sophisticated and forward-looking credit opinions.

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